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Prince’s WMG Deal Stems From U.S. Laws That Support Master Recording Copyright Termination

image from boogiewoogiebrody.files.wordpress.comBy copyright and intellectual property attorney Wallace E. J. Collins III, Esq..

The music business headlines are touting the story that Prince has returned to Warner Brothers Records after 18 years with a deal that will see him regain ownership of his back catalog of recordings. This deal marks a new era as the ability to terminate master recording copyright after 35 years was granted in the Copyright Revision Act of 1976 and became effective in 1978, the year that Prince's debut album came out.

Just as the record business has been staggering back to its feet after the digital assault started by Napster over a decade ago, another hard blow to the record industry business model is starting to have ripple effects. Recording artists and songwriters from 1978 and after are now entitled to start terminating their contractual transfers and demanding back their copyrights.

princeThe 1976 Copyright Act, in a provision that has generally been overlooked until now, provides for the termination of copyright transfers. Even if an artist or songwriter signed a contract with a record company or music publisher that purports to transfer all rights in a work in perpetuity, the Copyright Act provides that the author can terminate that grant and demand that the rights revert to the author in a shorter period of time. This is a great opportunity for artists and songwriters to get a second bite at the apple, so to speak, and get a better share of the income earned from their creative works.

Generally speaking, for copyright grants made on or after January 1, 1978 (the effective date of the 1976 Copyright Act) the termination period is 35 years under Section 203 of the Copyright Act. For pre-1978 works the termination period is 56 years after copyright was originally secured under Section 304. For grants on or after 1978, termination may be exercised anytime during a 5 year period beginning at the end of 35 years from the execution of the grant or, if the grant concerns the right of publication of the work, then the period begins on the sooner of 35 years after publication or 40 years after execution of the grant. Although there are certain formalities which must be complied with to effectuate transfer, this essentially means that recording artists and songwriters can start exercising their right of termination as soon as 2013 – which may effectively decimate many record company and music publishing catalogs.  

image from a2.mzstatic.comBack when the 1976 Copyright Act was drafted few could envision a world where the artists might not need the record companies to finance, manufacture, promote, store and distribute their records. Back then the expectation was that, although any particular artist could exercise the termination right, what would effectively happen is that the label and artist would simply be forced to renegotiate a deal to continue working together.

Now in the digital age, however, this is no longer true. Any artist can demand back their masters and then simply offer them on their own website or license the rights to an online aggregator with little or no expense. This is particularly true in the case of catalog recordings since the artist would not even need the record company to finance the recording costs. The more digital the music business becomes the more obsolete the large record labels become for established artists. High profile artists with already established fan bases and large catalogs such as Blondie, the Cars, Bruce Springsteen and others probably have no need for much in the way of advertising and marketing of their recordings, and certainly no need for manufacturing, distributing or warehousing of the product. Simple ownership and possession of the digitized masters would be sufficient.

There is one scenario that does bode well for record companies in that it may steer even established artists to follow the renegotiation route as Prince has done. Those familiar with record contracts know that, unlike song publishing contracts which generally provide for the assignment and transfer of a song copyright to the publisher, most record contracts provide that the sound recording is created as a “work for hire” for the record label. Under the 1976 Copyright Act the termination provision is not applicable to a genuine work for hire grant. However, this does not preclude recording artists from exercising their right of termination.

image from www.examiner.comJust a few years ago I litigated a case where the Court held that a sound recording does not qualify as a work for hire. Without getting into all the applicable legal employer/employee issues involved, there is a great deal of case law which addresses the subject of “work for hire” and holds that whether a work created by an employee is a work for hire or not depends on various factors other than just the language of the contract. This area of law is ripe for litigation by recording artists who want to exercise their termination rights where the facts suggest that no genuine work for hire relationship ever existed.

Although the landmark case has yet to be fought, from what I have seen it appears that in most cases the artist would prevail over the record company on this point. However, artist like Prince as well as label executives have also realized that the wiser course may be to negotiate the reversions and retain control of issuing artists' catalog eligible for copyright terminations.

The termination rights of an artist or songwriter are generally subject to a 5 year window. Termination must be made effective within the termination window or the right to terminate the grant is forfeited. To be effective, the artist or songwriter must serve a written notice of termination on the original record company or publisher (or its successor) no more than 10 and no less than 2 years prior to the effective date stated in the notice. The notice of termination must state the effective date of termination. Perfection of the termination requires that a copy of the written notice also be filed with the U.S. Copyright Office prior to the effective date of termination

Although the termination rights of an artist under the 1976 Copyright Act would only be effective for the U.S. territory, the size of the U.S. consumer market for recorded music still makes this a valuable right to reclaim. However, what is good for the artist might further erode the influence of the major record labels and prove detrimental to the industry in the future, so labels would be well advised to start planning for the onslaught and try to forge deals like Prince has done with Warner Brothers.    

Wallace CollinsWallace Collins is a New York lawyer specializing in entertainment, copyright, trademark and internet law. He was a recording artist for Epic Records before attending Fordham Law School. T:(212) 661-3656 / www.wallacecollins.com

 

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1 Comment

  1. Esq. Collins:

    As the window to exercise reversion rights quickly descends upon the music world, I find this post to be both timely and informative, while providing a backdrop against which we can explore the potential future for artists who have reclaimed their copyrights. As a graduating senior receiving a degree in music industry who will be working at a music publisher upon graduation, this topic is especially poignant, as the livelihood of the music publisher is based upon the exploitation of a rich and copious catalog. Personally, I found the explanation of the clause to be well done, though I might suggest the addition of a visual to better illustrate the window in which the artist must send notice to the copyright holder and file with the U.S. Copyright Office, which can be a tricky concept, even for those familiar with it. And while the issue regarding “work for hire” will likely be caught up in the court system for some time, what facts or points do you suggest will allow the courts to find in favor of the artists, establishing that such recordings were not made under a sort of “work for hire” agreement? Could you see the decision of this landmark case having a further effect on works created by composers for films and television that are customarily considered “works for hire”? In the interim, I do agree that the companies who control the rights currently should prepare for aggressive negotiation and agreement drafting to protect their interests in the recordings, and personally recommend the hiring of additional legal personnel to manage the notice and ensure that no copyrights slip through the cracks due to carelessness.

    As the window for terminating copyright control opens and closes, I recognize the chance of an artist being unaware of such a clause as too great. In cases similar to that of Sly Stone (of Sly & The Family Stone), many musicians are not privy to the nuisances of copyright and contract law, and may fail to capitalize on this legal opportunity to regain assets and potentially boost income. Do you believe that this lack of understanding on the part of the musicians might open the market for small consulting groups to operate and provide guidance to these artists who are particularly unaware? As total income for the music industry in the U.S. decreases, such boutique firms providing a unique and specialized service to artists could be profitable and stable enterprises as terminations are only just beginning. While it is easier to manage an artist’s catalog on their own given the recent rise in digital formats and various online companies, it should be noted that being one’s own publisher could be an arduous task, especially when it comes to tracking and collecting the income deserved. Therefore, I would urge artists who do not have a catalog which can essentially “sell itself,” based on its contents or its composer, to seriously consider entering into negotiations with the current copyright holders, who can pay an additional advance and market the catalog with its copious resources. Overall, this article was very accessible and made a great connection between the abstract law and the physical impact it has on artists like Prince, and would be highly valuable to those artists unfamiliar with the money they might be leaving on the table.

    Nicholas Hrenchuk

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